AUGUSTA — An overhaul plan designed to provide tax relief to Mainers encountered withering opposition Friday from the industry and interest groups that would help pay for it.
Meanwhile, the two major political parties remained largely silent, another sign that legislative leaders remain cool to the proposal.
The dramatic plan, crafted by a bipartisan group of lawmakers, would flip Maine’s tax system by slashing the state’s income tax rate in half and making a host of other sweeping changes, including raising sales and excise taxes and eliminating exemptions.
Proponents of the plan told lawmakers on the Legislature’s Taxation Committee on Friday that the proposal will provide income and property tax relief to Mainers.
Sen. Dick Woodbury, an independent from Yarmouth, is the plan’s architect. He told lawmakers the plan is “pro-growth” and designed to attract businesses and spread the current tax burden to nonresidents.
“I believe this plan sends a clear signal to Maine businesses and has a lot of potential to be an economic driver,” he said during the public hearing.
The plan cuts Maine’s top income tax rate of 8 percent and replaces the current tiered system with a 4 percent flat rate. It also increases the state’s homestead exemption from $10,000 to $50,000, a measure designed to provide direct property tax relief to homeowners.
The proposal would pay for the cut by increasing the sales tax from 5 percent to 6 percent while eliminating a host of current sales tax exemptions. It also would increase excise taxes on items such as cigarettes, beer and wine, while also increasing lodging taxes.
On Friday a host of groups lined up to oppose the bill, including the Maine Tourism Association, the Maine State Chamber of Commerce, the National Federation of Independent Business, the Ski Maine Association, the Maine Association of Nonprofits, the Maine Innkeepers Association, and the Maine Realtors Association.
Lobbyists, some representing multiple organizations, filled the Welcome Center at the State House, which served as an overflow room for the public hearing. Most of those who testified Friday opposed the bill.
The criticism centered on provisions in the bill, L.D. 1496, that would either remove current sales tax exemptions or increase excise taxes.
While many commended the bipartisan coalition of lawmakers for trying to reduce the state’s income tax burden, opposition groups weren’t thrilled that they were being asked to pay for the cut.
Some said the proposal was too dramatic to be considered so late in the legislative session.
The proposal aims to eliminate a host of exemptions, a move Woodbury said was designed to spread the effect among a greater number of affected groups.
However, on Friday organizations said the proposal would make them less competitive.
The Maine Beer & Wine Distributors Association argued that the proposal unfairly targeted them by doubling excise taxes, from 35 cents to 70 cents on beer, and 60 cents to $1.20 on wine.
Cheryl Timberlake, a lobbyist for the distributors, said the increases would be “devastating.”
“Excise taxes have a powerful impact on volume,” said Timberlake, adding that companies probably would pass on the increased taxes to Maine consumers, thus resulting in lost sales.
Timberlake also argued that taxes on spirits should be included if beer and wine taxes are increased.
Linda Gifford, with the Maine Association of Realtors, told lawmakers that the provision taxing services would increase the cost of buying a home because Realtor commissions, appraisals, inspections and surveys and title services also would be taxed.
The bill’s plan to tax coin-operated services drew opposition from the Coin Laundry Association. Brian Wallace, the association’s executive director, said Maine would join just four other states that tax self-service laundries.
Others questioned shifting the tax burden from income to consumption taxes.
Albert DiMillo, a retired certified public accountant who frequently testifies on tax legislation, told lawmakers that the proposal overwhelmingly would benefit wealthy residents.
Garrett Martin, the executive director for the Maine Center for Economic Policy, a progressive group, said shifting to a system more reliant on sales taxes was less sustainable and could stymie Maine’s economic recovery from the recession.
Martin said income taxes are expected to grow faster than other taxes. Cutting income taxes, he said, “is like selling an asset just as it is about to increase in value.”
Sen. Doug Thomas, R-Ripley, blasted the bill, saying he would oppose it “with all that’s in me.” Thomas said the property tax relief would benefit communities with higher tax rates disproportionately. Thomas also criticized the bill for proposing to tax groceries and heating oil.
Proponents of the bill argue that a significant tax credit for low- and middle-income individuals and families would moderate, if not erase, the regressive effect of higher sales taxes and taxes on items such as groceries and oil.
Meg Gray Wiehe, state tax policy director for the Washington, D.C.-based Institute on Taxation and Economic Policy, told MaineToday Media that the proposal’s tax fairness credit has “more potential than anything I’ve seen to truly offset the impact of the sales tax changes on low- and middle-income households.”
Woodbury estimates that a proposal to increase the Homestead Exemption from $10,000 to $50,000 would yield an average property tax reduction of $500 and more in communities with higher tax rates.
Geoff Herman, representing the Maine Municipal Association, said it had analyzed the effects and found that Maine property taxpayers would see an average reduction of $500 in their tax bills.
Herman also provided a detailed town-by-town analysis estimating the effects of the homestead exemption. According to the analysis, a property taxpayer with a $200,000 home in Portland would see a $643 decrease under the proposal, and an Augusta homeowner with a $150,000 house would see a $577 reduction. There would be a $723 reduction for a $200,000 home in Yarmouth and a $773 reduction for a $150,000 home in Lewiston.
Herman said the provision in the bill to increase the homestead exemption to $50,000 would ensure that increased revenue generated by the proposal would go to property taxpayers. Herman cautioned that municipalities would lose some discretionary spending authority as a result of the targeted spending.
The bipartisan group of lawmakers was prepared for the opposition.
“Passing this bill will not be easy,” said Sen. Roger Katz, R-Augusta, in a statement. “Each political party is wary, but we can make this happen.”
Steve Mistler — 620-7016